12 Dec California Legislative Update
The California legislature recently amended its Civil Code to add a new section to address how mortgage servicers must address successors in interest related to a residential mortgage loan, effective January 1, 2017.
CALIFORNIA SENATE BILL 1150
The existing law imposes requirements that must be satisfied prior to exercising a power of sale. A borrower has rights and remedies related to foreclosure prevention alternatives, as defined in the California Homeowner Bill of Rights. The new section adds new requirements on mortgage servicers related to deceased borrowers and successors in interest.
This new act (effective until January 1, 2020) prohibits a mortgage servicer, upon notification that a borrower has died, from recording a notice of default until the mortgage servicer takes certain actions, including:
• Requesting reasonable documentation of the death of the borrower from a claimant (someone claiming to be a successor in interest, who is not a party to the loan or promissory note);
• Providing a reasonable period of time for claimant to present the requested documentation regarding borrower’s death (no less than 30 days);
• Requesting reasonable documentation from the claimant demonstrating the ownership interest of that claimant in the real property; and
• Providing a reasonable period of time for claimant to present the requested documentation regarding ownership (no less than 90 days).
“Successor in interest” means a natural person who provides the mortgage servicer with notification of the death of the borrower or trustor and reasonable documentation showing that the person is the spouse, domestic partner, joint tenant, as evidenced by grant deed, parent, grandparent, adult child, adult grandchild, or adult sibling of the deceased borrower, who occupied the property as his or her principal residence within the last 6 continuous months prior to the deceased borrower’s death and who currently resides in the property.
The new section applies to first lien mortgage or deeds of trust that are secured by 1-4 family owner-occupied residential real property. “Owner-occupied” means that the property was the principal residence of the deceased borrower.
There may be more than one successor in interest and the provisions above must be applied to all. If one or more of multiple successors in interest do not wish to proceed as co-borrowers or co-applicants, a mortgage servicer may require any nonapplicant successor in interest to consent in writing to the application for loan assumption.
A successor in interest who assumes the loan may be required to otherwise qualify for foreclosure prevention alternatives offered by the mortgage servicer. There is no affirmative duty for a mortgage servicer to alter any obligation or to provide a loan modification to a successor in interest.
Within 10 days of a claimant being deemed to be a successor in interest, a mortgage servicer must provide information about the loan, including, at a minimum:
• Loan balance;
• Interest rate;
• Interest reset dates and amounts;
• Balloon payments, if any;
• Prepayment penalties, if any;
• Default or delinquency status;
• Monthly payment amount; and
• Payoff amounts.
A mortgage servicer must allow a successor in interest to either:
• Apply to assume the deceased borrower’s loan; or
• Apply simultaneously to assume the loan and for a foreclosure prevention alternative.
Both options may include an evaluation of the creditworthiness of the successor in interest under applicable investor requirements and guidelines.
If a trustee’s deed upon sale has not been recorded, a successor in interest may bring action for injunctive relief due to a violation of any of the above requirements.
If a trustee’s deed upon sale has been recorded, a mortgage servicer is liable to a successor in interest for actual economic damages resulting from violations of the above requirements if the violation was not corrected and remedied prior to recordation of the trustee’s deed. If the violation was intentional or reckless, or resulted from willful misconduct by a mortgage servicer, the court may award the greater of treble actual damages or statutory damages of $50,000.
The Department of Business Oversight and the Bureau of Real Estate are authorized to adopt regulations to carry out the purposes of the new section.